Ally Financial (ALLY) down despite Q4 earnings and revenue – January 24, 2022

Allied Financialit is (ALLY Free Report) fourth-quarter 2021 adjusted earnings of $2.02 per share beat Zacks’ consensus estimate by a penny. Net income showed a 26.3% increase over the number in the prior year quarter.

Results benefited primarily from improved revenues and higher loan and deposit balances. However, an increase in expenses as well as higher provisions somewhat detracted from the results. That may have been a reason the company’s shares fell 3.9% after the earnings release.

After taking into account one-time items, net income (GAAP) was $624 million or $1.79 per share, compared to $687 million or $1.82 per share in the quarter. ‘last year.

In 2021, adjusted earnings of $8.61 per share exceeded the consensus estimate of $6.70 and increased significantly from $3.03 in 2020. Additionally, net earnings of $3 billion increased significantly increased from $1.1 billion in 2020.

Revenue improves, expenses increase

Total GAAP net revenue for the quarter was $2.21 billion, up 11.1% year-over-year. The top line beat Zacks’ consensus estimate of $2.06 billion.

In 2021, net revenues increased 22.7% to $8.20 billion. Revenue exceeded the consensus estimate of $7.72 billion.

Net financing income increased 3.8% from the prior year quarter to $1.65 billion. This increase is due to an increase in interest and commissions on financial receivables and loans, total interest and dividends on marketable securities and operating leases.

Adjusted net interest margin was 3.82%, up 90 basis points (bps) year-over-year.

Total other income was $545 million, down 19.6% from the prior year quarter.

Total non-interest expense increased 6.5% year over year to $1.09 billion. The increase is due to higher compensation and benefits expense and other operating expenses.

The adjusted efficiency ratio at the end of the fourth quarter was 44.4%, compared to 49.8% a year ago. A decline in the efficiency ratio indicates an improvement in profitability.

Credit quality: a mixed bag

Non-performing loans of $1.44 billion, as of December 31, 2021, decreased 5.7% year over year. In the current quarter, the company recorded net charges of $103 million, down 48% from the prior year quarter.

The provision for loan losses of $210 million increased significantly from $102 million in the prior year quarter.

Loan and deposit balances increase

As of December 31, 2021, total net financial receivables and loans were $119 billion, up 7% from the previous quarter. Additionally, deposits increased 1.5% from the end of the previous quarter to $141.6 billion.

Capital ratios are deteriorating

As of December 31, 2021, the total capital ratio was 13.4%, compared to 14.1% in the prior year quarter. The Tier I capital ratio was 11.9%, compared to 12.4% as of December 31, 2020.

Share buyback update

In 2021, the company repurchased around 40 million shares for $2 billion.

Our point of view

Ally Financial’s initiatives to diversify its revenue base will likely continue to support its profitability. Given a strong balance sheet, the company remains well positioned to grow through acquisitions. However, the continued increase in expenses (mainly due to the company’s inorganic growth efforts) and increased provisions will likely hurt earnings growth.

Currently, Ally Financial carries a Zacks rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings release dates for other consumer loan providers

Capital one (COF Free Report) is expected to release fourth quarter and full year 2021 results on January 25.

Over the past 30 days, the Zacks consensus estimate for Capital One’s quarterly earnings has fallen slightly to $5.14. This indicates a decline of 2.8% from the prior year quarter.

Navient Corporation (NAVIGATION Free Report) is expected to release fourth quarter and full year 2021 results on January 25.

Over the past 30 days, the Zacks consensus estimate for Navient Corporation’s quarterly earnings rose 4.9% to 85 cents. This indicates a decline of 3.4% from the prior year quarter.

Enova International (ENV Free Report) is expected to release fourth quarter and full year 2021 results on February 3.

Over the past 30 days, the Zacks consensus estimate for Enova International’s quarterly earnings was unchanged at $1.14. This indicates a decline of 52.3% from the prior year quarter.

Sallie R. Loera